A report from the US government's Energy Information Administration showed increases in distillate inventories and in gasoline supplies on the US East Coast, which includes the New York harbor.

Brent crude, US crude, US gasoline and US heating oil all fell more than 2 percent during mid-day trading. US crude and Brent crude each lost more than $2 per barrel.

Stephen Schork, the editor of The Schork Report, said Brent's dip below $98 triggered a selloff by breaching a key technical support level, or a number used by traders who base their activity on charts.

"$97.91 in Brent was a key technical number, so once we hit that level, probably triggered a bunch of selling," said Schork.

"This is all continuation selling - the bulls are getting stopped out and bears are stepping in to fill the void."

The North Sea benchmark has lost more than 7 percent over the past five sessions in a wider commodities rout triggered by data showing growth in China, the world's second-largest oil burner, had slowed unexpectedly in the first three months of 2013.

Brent crude shed $2.35 to $97.56 by 12:22 p.m. EDT (18:22 GMT), after sinking earlier to $97.26, the lowest since July 2012. US crude slipped $2.37 to $86.35.

The US dollar strengthened against the euro and the yen after comments from a European Central Bank official stoked speculation of an interest rate cut in the euro zone. A stronger dollar makes dollar-priced commodities more expensive.

However, gasoline stocks on the US East Coast are up 5.3 million barrels over the same time last year.

Distillate stockpiles, which include heating oil and diesel, rose 2.36 million barrels, compared with forecasts for a draw of 500,000 barrels.

Stocks at the Cushing, Oklahoma, crude storage hub rose 1.08 million barrels to 51.15 million. Crude imports fell 289,000 barrels per day to 7.39 million bpd.

"There was nothing in this report that was really bullish. So now the market is deferring to what we're seeing in the outside markets such as the dollar and the stock market, which has been under pressure," said Phil Flynn, analyst at Price Futures Group in Chicago.

"Obviously, it's a report that reflects the seasonal weak demand for this time of the year and because of that, there's nothing here that is getting the market excited."

The EIA report follows a cut in growth projections by the International Monetary Fund (IMF), for this year and next.

Gold later edged back, although other metals such as copper continued to decline.

"At the moment the oil complex is in a technical downtrend with the fundamentals being driven by a deteriorating demand projection in a robust supply environment," said Dominick Chirichella of Energy Management Institute.

The head of the International Energy Agency, Maria van der Hoeven, said the oil price decline was proof that the market was adequately supplied.

"For now there is no immediate reason - other than short covering - to suggest that oil prices are ready for a strong move to the upside," said Chirichella.

While further weakness in Brent crude cannot be ruled out, oil prices are unlikely to fall below the $100 a barrel mark past the second quarter, Barclays said in a note on Tuesday.

A pick-up in hedging activity from consumers who have been waiting on the sidelines for better entry points for their hedging programmes could help support prices, it added.

"The second layer of support is likely to come through market expectations surrounding comfort levels for OPEC producers to continue producing above their target, below the $100/bbl, which they have lately mentioned as appropriate for both consumers and producers," according to Barclays.